Let’s review the most common items that an underwriter might want to verify (at the last minute) during the process of closing on your new mortgage. As of this writing, I’ve signed for a new mortgage loan (or home equity line of credit) at least 25 different times in the last 20 years.
Each time was for either a real estate purchase or refinance and the underwriting process has been mostly the same each time.
Below, I’m going to give you a checklist of items for all the things I’ve been asked over and over again by any underwriter that was assigned to my escrow. We’ll also discuss how long things take and what to do when the underwriter wants to see extra cash in your account before closing.
Mortgage Underwriting Approval Checklist of Items
1) You Need More Cash For The Closing Costs
You need to bring more cash to close the deal because your Good Faith Estimate (GFE) was not exactly accurate. The title fees or insurance premiums might have been higher than initially thought. Or your mortgage broker charged you an extra point or fee at the last minute. Ask questions to your loan agent if you notice a fee or charge on the Good Faith Estimate that might look suspicious.
2) You Need More Cash Reserves in your Checking / Savings Account
Typically, the banks need to see three months of reserves (monthly payments) in your checking account. Then they tell you that six months is required. They try to scare you like you won’t get the loan unless you comply. This has happened to me many times in the past. If the lender tells you, in the beginning, they just need three months, plan for six just to be sure.
3) Evidence of Earnest Money
The underwriter will want to verify the earnest money deposit you paid the seller when you submitted your offer. Usually, either a proof of the money wired or a copy of the cashed check will suffice. The amount will also be clearly documented in your real estate purchase agreement.
4) You Financed A Big Purchase on Your Credit During Escrow
If you went out and financed a boat or new car on your credit, it would throw serious red flags to the underwriter. They tend to check your credit one last time before you sign the closing docs on your new mortgage loan. Avoid using your credit for any big purchases during your escrow (even if it’s to fix up the property before you move in.) Not doing so might cause you to lose the loan, the lender will deny you.
5) Borrower Letter of Explanation
A recent event that impacts your finances might need to be explained in writing. You can write a Borrower Letter of Explanation to the underwriter explaining the situation. You can find an example of this letter on Google, just search for “Borrower Letter of Explanation Example.”
Typical events that impact your finances could be things like:
- Large deposits in your bank accounts
- A less than two-year job history
- Long gaps in your job history
- Recent pulls on your credit
The list of possibilities is endless, and there’s no way to predict what an underwriter will ask for.
6) Gift Letter
If you’re receiving a cash gift for the purchase of your new home, don’t be surprised if you have to provide a letter explaining who it’s from and for how much. You may also need to prove where the money came from by providing a copy of the gift check or a wire transfer receipt. When I bought my first place, I used a tax refund for part of the downpayment. The underwriter thought it was a gift, and it was not so I showed them a copy of the tax refund, and it was fine.
7) Copy of HELOC Note
Sometimes people will fund their new real estate purchase using a Home Equity Line of Credit (HELOC). When doing this, you might have to provide a copy of the note for the loan you’re pulling the funds from.
8) Source Large Deposits
Underwriters get suspicious of any recent large deposits that are put into your bank accounts. Usually within the last 12-24 months. Make sure you have an explanation and can provide proof of where that money came from. They want to make sure you’re not a higher risk because you’re using debt to fund those deposits.
9) Verification of Employment
For obvious reasons the lender needs to know that you have a job. A verification of employment form will be sent to your company. It will provide your dates of employment and salary information. The Human Resources Dept. at your company will most likely provide this information.
10) Fully Executed Sales Contract
The underwriter will need a copy of the full sales contract. Typically, your loan officer or mortgage broker will forward a copy on your behalf. If they forgot, you could also send them your copy.
Mortgage Underwriting Frequently Asked Questions
Here are some answers to the most common questions people ask me about in regards to an underwriter approving your loan.
How long does a mortgage or HELOC underwriting take?
The timeline will be dependent on how fast your new home will be available to close and by how organized you are with your approval process. If you’re already pre-approved for a mortgage loan, then it’s a good sign that you’ll be just fine and the underwriting should not take more than 2 – 4 weeks for a purchase or refinance.
What happens when a mortgage or HELOC goes to underwriting?
When you submit an application for a new mortgage there are certain guidelines and requirements you must meet before you can sign the final papers. One very common issue that will come up is an underwriter at the last minute pulls the rug from under your feet by asking for more cash reserves in your checking account.
This actually happened to me! Not once, but at least 5 times now.
Each and every time, I was able to get the extra money from another account and show the underwriter proof of the transfer. Luckily for me, this has been an easy process.
But, what if I did not have the extra money to close?
If you cannot fulfill the request from the underwriter, then you’ll need to give them an honest explanation of why. Then see what happens.
I would confront the underwriter and say something like this:
“Look, you said I had enough cash reserves during the pre-approval of the mortgage, and that’s all I have. We are three days away from closing. You’d better approve it, or you can explain to the seller, realtors, title company, and everyone else involved why we got this far, and now you’re giving me the runaround.”
After an underwriter hears an explanation like that, they might make an exception (while relying on their professional experience of course.) Each case will be different and need its own unique explanation. Underwriters can lose their job if they don’t correctly qualify someone. So most of the time they’re just being extra cautious. The more prepared you are for what they might ask about, the better off you will be.
Quick Tip: If the underwriter does not approve your loan you might be forced to forfeit your deposit on a property your purchasing. Be prepared for anything with these underwriters. Their job is to minimize risky loans. Be careful and don’t cheat the system they have for verifying things, it could cost you.
Purchasing a new home or doing a refinance is one of the most stressful times you will deal with in life. When it’s done, it will be one of the happiest times! Especially, if you’re a first time home buyer.
Knowing how to deal with the last minute requests of a mortgage loan underwriter will allow you to be prepared. And that will make the overall process of closing on your new property quicker and more relaxed.